Question

Oliver, Patrick & Quincy LLP, is beginning liquidation. It has no cash, total liabilities of $60,000, including a $10,000 loan payable to Patrick, and equal partners' capital account balances of $40,000. The income-sharing ratio is 5:1:4, respectively. If a portion of the noncash assets with a carrying amount of $140,000 realizes $120,000, the cash payment that Patrick receives is:

A) $20,000
B) $44,000
C) $53,000
D) Some other amount

Answer 1

The cash payment that Patrick will receive during the liquidation of Oliver, Patrick & Quincy LLP is $6,000.

Step-by-step explanation:

To calculate the cash payment that Patrick receives during the liquidation of Oliver, Patrick & Quincy LLP, we need to determine the amount of capital each partner will receive. The income-sharing ratio of 5:1:4 means that Oliver, Patrick, and Quincy will receive 5/10, 1/10, and 4/10 of the total capital, respectively.

The total capital available is the partners' capital account balances plus the amount realized from the noncash assets. Therefore, the total capital is $40,000 + $120,000 = $160,000.

Patrick's share is 1/10 of $160,000, which is $16,000. However, Patrick also has a $10,000 loan payable to him, so the final cash payment that Patrick will receive is $16,000 - $10,000 = $6,000.